Hi All: this is my first post; I've read and enjoyed the forum entries over the past year or so. Here is my question: I have (what to me is) a good deal of money in the Vanguard intermediate bond fund VBILX. The NAV has been tanking lately, and I wonder if I should get out now (with about what I put in). However, my real interest is longer term -- I could leave it for 5 or so years without touching it. But there is so much talk of a "bond bubble" that I am (to be frank) getting nervous. My preference is for stable, secure investments. Perhaps I should go into a bond ladder (say Ibonds)? Thanks in advance! - Alamander

Please describe what you mean by "tanking", a drop of 20%? 10%? It is normal for this fund to drop by 5% or so. Did you own this fund in late 2010 when it dropped by 6% in value in the course of just 1 month? What did you do then?

livesoft wrote:Please describe what you mean by "tanking", a drop of 20%? 10%? It is normal for this fund to drop by 5% or so. Did you own this fund in late 2010 when it dropped by 6% in value in the course of just 1 month? What did you do then?

Thank you for responding. I admit "tanking" is way too strong a word. It has dropped only 2-3% since I bought it. I have owned it only since July of this year. Maybe I used that word because that is what I am afraid of, rather than because that is what has happened.

So, maybe I need to refocus my question -- is it likely that there is a bond bubble, and that the NAV of VBILX will go down substantially? Does this matter if I expect to hold it for, say, 5 years?

livesoft wrote:Please describe what you mean by "tanking", a drop of 20%? 10%? It is normal for this fund to drop by 5% or so. Did you own this fund in late 2010 when it dropped by 6% in value in the course of just 1 month? What did you do then?

Thank you for responding. I admit "tanking" is way too strong a word. It has dropped only 2-3% since I bought it. I have owned it only since July of this year. Maybe I used that word because that is what I am afraid of, rather than because that is what has happened.

So, maybe I need to refocus my question -- is it likely that there is a bond bubble, and that the NAV of VBILX will go down substantially? Does this matter if I expect to hold it for, say, 5 years?

Thanks...

What will you do with the money you take from your bond fund? Many people feel equities and real estate are similarly overvalued and face many years, if not decades, of near-zero returns.

As mentioned in Livesoft's reply, there have been false-starts to the "inevitable" interest rate rise that has been predicted seemingly since forever. Eventually the predictions will probably be correct, but people who've acted on them previously have generally lost in opportunity cost - in some cases significant amounts.

alamander wrote:Thank you for responding. I admit "tanking" is way too strong a word. It has dropped only 2-3% since I bought it. I have owned it only since July of this year. Maybe I used that word because that is what I am afraid of, rather than because that is what has happened.

I looked at Morningstar for VBILX and it has not dropped in value since July 2012 (if you reinvested dividends), so I do not understand where you are getting your information.

I own the ETF share class of this fund.

But who knows what will happen in the future? I sure don't. Nevertheless, is this a buying opportunity?

If you are really investing in this fund for a term of 5 years or more, which is the only way that makes sense to me, then you should avoid paying attention to short-term fluctuations. If you have made a plan for investing and it is diversifed, then these 6 month changes in NAV are not important.

As a broader response to part of your original post, people often talk about choosing between bonds/CD's and bond funds as if you must choose one or the other. You don't have to; you can have both. I do and I think about the CD's and I-Bonds as particularly stable. This then makes it easier to ignore the fluctuations that occur in my bond funds.

When the value of your shares drop the interest goes up. It's not tanking. Interests rates have ticked up a little recently which is why you are seeing the drop in principle. Don't look at it so often is my advice. I own this fund as well and am happy with how it's invested.

Well thanks to all for responding. I am new to this forum but I think I will start reading more of this and less of the daily news (which I guess makes me more anxious than need be). It sounds like you can't time bond funds any more than stocks. I'm going to hang in there; thanks again.

alamander wrote:Hi All: this is my first post; I've read and enjoyed the forum entries over the past year or so. Here is my question: I have (what to me is) a good deal of money in the Vanguard intermediate bond fund VBILX. The NAV has been tanking lately, and I wonder if I should get out now (with about what I put in). However, my real interest is longer term -- I could leave it for 5 or so years without touching it. But there is so much talk of a "bond bubble" that I am (to be frank) getting nervous. My preference is for stable, secure investments. Perhaps I should go into a bond ladder (say Ibonds)? Thanks in advance! - Alamander

If you feel that a 2-3% drop in a bond fund is "tanking" you should probably keep your money in a CD

alamander wrote:Hi All: this is my first post; I've read and enjoyed the forum entries over the past year or so. Here is my question: I have (what to me is) a good deal of money in the Vanguard intermediate bond fund VBILX. The NAV has been tanking lately, and I wonder if I should get out now (with about what I put in). However, my real interest is longer term -- I could leave it for 5 or so years without touching it. But there is so much talk of a "bond bubble" that I am (to be frank) getting nervous. My preference is for stable, secure investments. Perhaps I should go into a bond ladder (say Ibonds)? Thanks in advance! - Alamander

Please describe what you mean by "tanking", a drop of 20%? 10%? It is normal for this fund to drop by 5% or so..

I admit "tanking" is way too strong a word. It has dropped only 2-3% since I bought it. I have owned it only since July of this year. Maybe I used that word because that is what I am afraid of, rather than because that is what has happened.

Bogleheads Wiki wrote:Duration has another useful summary property, which is that if the yield curve shifts in parallel, then duration is the point of indifference to interest rate changes. For example, if a bond/portfolio/fund with a duration of 5 years experiences a market interest rate increase of 1%, its value will drop by approximately 5%; however, since the same coupon payment now represents a higher percentage of the bond's value, its yield is higher (it will match the market rate), and the higher yield plus higher market interest on coupon payments compensate for the NAV loss.

alamander wrote:
So, maybe I need to refocus my question -- is it likely that there is a bond bubble, and that the NAV of VBILX will go down substantially? Does this matter if I expect to hold it for, say, 5 years?

A quick look at Vanguard shows that the average duration for VBILX is 6.5 years. It would be safer to plan to hold this fund for 10 years. That way, even if the NAV drops, you will be gaining more in interest to make up for the capital losses.